With its reform drive lagging behind expectations, Indonesia remains one of the most difficult places in the world to do business, and it may be getting worse, the latest report from the World Bank shows.

Indonesia was cited for reducing the time and cost needed to start a business, but progress on other issues -- registration and licensing, tax payment, employment, trade, financing and contract enforcement -- remained almost stagnant.

While it now takes only 97 days -- from 151 days -- to set up an enterprise in Indonesia, and at a reduced cost of 86.7 percent -- from 101.7 percent -- of the country's per capita income, it still takes almost a year to get through the tangle of licensing.

It also takes another month's time each for paying taxes and clearing customs, as well as almost two years to settle labor issues.

The continuing obstacles relegated Indonesia to 135th of 175 countries surveyed by the World Bank and its financial arm, the International Financial Corporation (IFC), in their Doing Business 2007 report. Last year, it ranked 131st among 155 nations.

With other countries in the region faring much better, Indonesia will have to try harder to improve or risk losing out on vital foreign investment to spur higher growth.

Singapore topped the list as the most attractive place to do business. Thailand moved up a place to 18th from last year's survey, while Malaysia remained at 25th. Vietnam slipped to 104th from 98th place, as did the Philippines, down five notches at 126th.

World powerhouse China was in 93rd place -- a marked improvement from 108 -- as it emerged as one of the world's top-ten, pro-business reformers. Rival emerging giant India was 134th, improving four places.

Indonesia should not despair, however, with the report's team leader Caralee McLiesh saying the country's drop in ranking was "not because of negative reforms".

"The problem here is the whole world is getting better, so it is not enough to reform just a little bit, to maintain the current position," she said in Washington during a teleconference with Southeast Asian media.

The report compiled data only as of January 2006.

Opportunities for reform remain open, McLiesh added, particularly in reducing the exorbitant time and cost involved in enforcing contracts in the country's courts.

"Electronic filing of taxes has also been implemented, although we haven't seen the impact of it yet."

The report suggested scrapping "special-treatment tax schemes", which only hurt small businesses, for gradual tax reductions to prevent further tax favoritism.

Indonesia, which was reported having a 37.2 percent average tax rate compared to the region's 40 percent average, plans to gradually cut corporate tax rates to 25 percent from 30 percent by 2009.